EX-10.4






Exhibit 10.4




PURCHASE AND SALE AGREEMENT




     THIS AGREEMENT dated this 11th day of June, 2008, (the “Effective Date”) is between
MACUM ENERGY, INC., a Montana corporation (“Macum”), with its offices located at 730 Main Street,
Suite 103, Billings, MT 59105; Harold & Eva Holden Living Trust dated 1995, Harold & Eva Holden,
Trustees, Box 1743, Billings, MT 59103; Winifred Gas Partnership, 3015 Stanford Drive, Billings, MT
59102; Goodridge Resources, Inc., 2049 Interlachen Drive, Billings, MT 59105; Vincent T. Larsen,
P.O. Box 2297, Billings, MT 59103; Dr. David T. Larsen, 4815 Cranbrook Drive East, Colleyville, TX
76034; Pic Productions, Inc., 3024 MacTavish Circle, Billings, MT 59101; Stanley & Beverly Stott
Living Trust dated 4/30/96, Stanley & Beverly Stott, Trustees, 211 Glenhaven Drive, Billings, MT
59105; and Faith Drilling Inc., P.O. Box 369 Chinook, MT 59523.(collectively referred to herein as
“Seller”), and KYKUIT RESOURCES, LLC, an Ohio corporation, or its nominee (“Buyer”), with its
offices located at 8500 Station Street, Suite 345, Mentor, Ohio 44060.



     WHEREAS, Seller desires to sell, and Buyer desires to purchase, upon the terms and conditions
hereinafter set forth, all of Seller’s right, title and interest in and to the following:




	 	(i)	 	All of Seller’s interest in, to and under approximately 34,971 acres of oil and
gas leases located in Blaine and Fergus Counties, Montana, including leasehold
interests, mineral fee interest, rights and interests attributable or allocable to the
oil and gas leases or leasehold interest by virtue of pooling, unitization,
communitization, and operating agreements, licensees, permits and other agreements, all
more particularly described on Exhibit “A” hereto, together with identical undivided
interests in and to all the property and rights incident thereto (collectively the
“Leases”), including, but not limited to, all rights in, to and under all agreements,
product purchase and sale contracts, including any and all past, present and future
take-or-pay claims, leases, permits, rights-of-way, easements, licenses, farmouts,
farmins, options, orders and other contracts or agreements of similar nature in any way
relating thereto;
	 
	 	(ii)	 	All of Seller’s interest attributable to the Leases in and to all of the wells
described on Exhibit “B” (the “Wells”), and all equipment, inventory, materials and
other personal property, fixtures and improvements on the Leases or relating to the
Wells as of the Closing Date, or used or obtained in connection with the Leases or the
Wells or with the production, treatment, sale or disposal of hydrocarbons or waste
produced therefrom or attributable thereto, and all other appurtenances thereunto
belonging (the “Equipment”);
	 
	 	(iii)	 	The pipeline facilities attributable to the Leases that are identified on
Exhibit “C” attached hereto (the “Pipelines”);
	 
	 	(iv)	 	All other leasehold interests, royalty and overriding royalty interest owned by
Seller in, to and under the Leases or attributable to production therefrom attributable
to the Leases as of the Closing Date (as hereinafter defined);




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	 	(v)	 	All unitization, communitization, pooling, operating or transportation
agreements, and the units created thereby which relate to the Leases, the Wells, or the
Pipelines attributable to the Leases, all of which are identified on Exhibit “D”
attached hereto;
	 
	 	(vi)	 	All rights to claim revenues or gas resulting from any underproduction
attributable to Seller’s interest in the Leases; and
	 
	 	(vii)	 	All lease files, land files, well files, oil and gas sales contracts files,
gas processing files, division order files, abstracts, title opinions, and all other
books, files, maps, logs and records, and all rights thereto, of Seller related to and
necessary to the realization of value by Buyer of any of the property purchased
hereunder (the “Records”). All of Seller’s interest in the assets described in
paragraphs (i) through (vi) above is hereinafter collectively referred to as the
“Interests”.





     The Interests sold and assigned under this Agreement do not include trade credits, accounts
and notes receivable, and adjustments or refunds (including without limitation transportation
tariff refunds, take-or-pay claims, and audit adjustments) attributable to the property with
respect to any period before the Closing Date.



     NOW, THEREFORE, in consideration of the above recitals and of the covenants and agreements
herein contained, Seller and Buyer agree as follows:


1. Purchase and Sale. Subject to an upon all of the terms and conditions herein set forth,
Seller shall sell, transfer, assign, convey and deliver the Interests to Buyer, and Buyer shall
purchase, receive, pay for an accept the Interests from Seller, effective as of 12:01 a.m. of the
day following the Closing Date (as hereinafter defined). Except as otherwise specifically provided
in this Agreement, all costs, expenses and obligations relating to the Interest which were incurred
or accrue prior to the Closing Date shall be paid and discharged by Seller; and all costs, expenses
and obligations relating to the Interests which were incurred or accrue after the Closing Date
shall be paid and discharged by Buyer.



2. Purchase Price.





	 	(a)	 	The purchase price for the Interests shall be Two Million Five Hundred
Thousand and 00/100 Dollars ($2,500,000.00) (the “Purchase Price”), subject to any
applicable purchase price adjustment as provided for herein;






Seller and Buyer agree that the Purchase Price has been calculated based upon a purchase
price for the Leases of Fifty Dollars ($50,00) per acre. In the event that, due to a due
diligence defect, Seller purchases more or less than 34,971 acres at Closing, the Purchase
Price shall be adjusted up or down accordingly.




	 	(b)	 	The Purchase Price, as adjusted, shall be paid by Purchaser as follows:






	 	(i)	 	Within five (5) business days after receiving a fully executed
copy of this Agreement from Seller, Buyer shall pay a deposit in the amount of
Fifty




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	 	 	 	Thousand and 00/100 Dollars ($50,000.00) (the “Initial Deposit”) to Seller
as an earnest money deposit, to be credited against the Purchase Price at
Closing. The Initial Deposit shall be nonrefundable except in the event of
a Seller’s Default, as defined herein, in which case Seller shall return the
Initial Deposit to Buyer within three (3) business days after Buyer notifies
Seller of its termination pursuant to Section 24(b) hereof.






	 	(ii)	 	The balance of the Purchase Price shall be paid in immediately
available funds to Seller on the Closing Date.




3. Definitions. As used herein, the term:





	 	(a)	 	“Defensible Title” shall mean, as to the Interest, such title held by Seller,
that subject to and except for Permitted Encumbrances (as hereinafter defined);






	 	(i)	 	Entitles Seller to receive not less than the “Net Revenue
Interest” as set forth in Exhibit “F” of all oil, gas and associated liquid and
gaseous hydrocarbons produced, saved and marketed from the Interests;
	 
	 	(ii)	 	Obligates Seller to bear costs and expenses relating to the
maintenance, development, and operation of all wells located on the Interests
in an amount not greater than the “Working Interests” set forth in Exhibit “F”;
and is free and clear of any and all encumbrances, liens and defects.






	 	(b)	 	The term “Permitted Encumbrances”, as used herein, shall mean:






	 	(i)	 	Lessors’ royalties, overriding royalties, and reversionary
interests if the net cumulative effect of such burdens does not operate to
reduce the Net Revenue Interest of any Interest to less than the Net Revenue
Interest set forth in Exhibit “F”;
	 
	 	(ii)	 	Sales contracts covering oil, gas or associated liquid or
gaseous hydrocarbons, all of which are identified on Exhibit “G” attached
hereto;
	 
	 	(iii)	 	Any required third party consents to assignments and similar
agreements with respect to which waivers or consents are obtained from the
appropriate parties, all of which are identified on Exhibit “H” attached
hereto;
	 
	 	(iv)	 	Liens for taxes or assessments not due or not delinquent on
Closing;
	 
	 	(v)	 	All rights to consent by, required notices to, filings with, or
other actions by governmental agencies in connection with the sale or
conveyance of oil and gas leases or interests therein or sale of production
therefrom if the same are prudently obtained subsequent to such sale or
conveyance;
	 
	 	(vi)	 	Easements, rights-of-way, servitudes, permits, surface leases,
and other rights of public record with respect of surface operations on or over
any of




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	 	 	 	the Interests which do not operate to interfere with current or proposed
operations on the Interests; and






	 	(vii)	 	Any Title Defects or other defects that are expressly waived
by Buyer pursuant to the terms of this Agreement.






	 	(c)	 	The term “Title Defect”, as used herein, shall mean:






	 	(i)	 	Any encumbrance, encroachment, irregularity, defect in or
objection to Seller’s title to the Interests (expressly excluding Permitted
Encumbrances) that renders Seller’s title to the Interests less than Defensible
Title;
	 
	 	(ii)	 	Seller is in default under some material provision of a lease,
farmout agreement or other contract or agreement affecting the Interests which
could interfere with the operation, value or use thereof, prevent Seller from
receiving the proceeds of production attributable to Seller’s interest therein;
or result in cancellation of Seller’s interest therein;
	 
	 	(iii)	 	Any provision or obligation affecting the Interests contained
in any contract or agreement disclosed in the Records which is not customary to
currently accept oil and gas industry standards and requires an extraordinary
expenditure in connection with the acquisition, exploration, development or
operation of the Interests or would materially diminish the Net Revenue
Interest set forth on Exhibit “F”, or materially increase the Working Interest
set forth on Exhibit “F”.






	 	(d)	 	The term “Due Diligence Defect” shall mean (i) any Title Defect(s), and (ii)
any other condition which Buyer discovers in its Due Diligence Review Period which
renders the Interests unfit for Buyer’s intended use for any reason whatsoever in
Buyer’s sole and absolute discretion.
	 
	 	(e)	 	The term “Environmental Defect” shall mean a violation (i) of any environmental
or work place safety statute, rule, regulation or order of any governmental agency
having jurisdiction over the Interests and (ii) to which remedial or corrective action
either is required or would be undertaken by a prudent operator.




4. Due Diligence Investigation. From and after the Effective Date of this Agreement and
continuing for a period of thirty (30) days (the “Original Due Diligence Review Period “), Seller
will make available to Buyer for examination and copying any of the Records as Buyer may request,
including, but not limited to, engineering and geological data, reports, maps, electric logs, mud
logs, production logs, well records relating to the Interests, files relating to claims against or
relating to the Interests, and information relating to the physical condition of the Interests and
the land adjoining the Interest, including, if any, results of any water or soil testing, NORM and
PCB evaluations, and all other records of Seller connected with the Interests which are necessary
or desirable in order for Buyer to conduct a due diligence review (the “Due Diligence
Investigation”). In the event that Seller fails to provide any documents requested by Buyer as
part of its due diligence review, then the Due Diligence Review Period shall be


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automatically extended by the number of days of Seller’s delay. Buyer may extend the Due Diligence
for an additional fifteen (15) days upon written notice to Seller delivered prior to the expiration
of the Original Due Diligence Period. If Buyer exercises its right to extend the Due Diligence
Period, then the Original Due Diligence Period and the fifteen (15) day extension period shall be
collectively referred to herein as the “Due Diligence Review Period”.



5. Due Diligence Defects and Remedies. Buyer shall notify Seller in writing of any Due
Diligence Defect within twenty (20) days after the end of the Due Diligence Review Period. Such
notice shall contain a detailed description of each due Diligence Defect. Any matters that may
otherwise constitute a Due Diligence Defect but that are not specifically and timely raised in
writing by Buyer shall be deemed to have been waived, provided, however, that Seller shall be
required to remove all monetary liens encumbering the Interests prior to Closing regardless of
whether Buyer timely objects to the same in writing.




     Upon receipt of such notice from Buyer, Seller shall have the right, but not the obligation,
to correct any Due Diligence Defect prior to Closing, other than monetary liens which must be
satisfied by Seller prior to Closing. In the event Seller determines it is unwilling to correct a
Due Diligence Defect, Seller shall so notify Buyer in writing within fifteen (15) days of receipt
of notice from Buyer of such Due Diligence Defect.



     In the event Seller declines to correct any Due Diligence Defect and that Due Diligence Defect
is not waived by Buyer, then the parties shall meet to attempt to determine a mutually agreeable
reduction in the Purchase Price to reflect the reduced value of the Interests as a result of the
Due Diligence Defect. In the event that, despite the parties’ good faith negotiations, no
agreement as to an adjustment to the Purchase Price can be reached, then either party may terminate
this Agreement as provided in Section 22 hereof.


6. Conditions of Closing by Buyer. The obligation of Buyer to close is subject to the
satisfaction of the following conditions:





	 	(a)	 	Buyer shall have completed its Due Diligence Investigation and shall not have
terminated this Agreement as a result of any Due Diligence Defect pursuant to Section 5
hereof;
	 
	 	(b)	 	Seller shall have obtained and delivered to Buyer all prerequisite waivers of
preferential rights of purchase and all necessary consents for transfer of the
Interests;
	 
	 	(c)	 	The representations of Seller contained in Section 8 shall be true on and as of
closing;
	 
	 	(d)	 	Seller shall have performed in all material respects all of its covenants and
agreements contained in this Agreement;
	 
	 	(e)	 	Prior to Closing, there shall not have been a material adverse change in the
Interests, in the reasonable opinion of Buyer, taken as a whole, excepting depletion
due to normal production and depreciation of equipment through ordinary wear and tear;




Page 5 of 18









 












	 	(f)	 	Prior to or at Closing, neither Seller nor Buyer shall have knowledge of any
bona fide suit, action or other proceeding or investigation before any court or before
any governmental agency or submission by any governmental agency of information
relating to the subject matter of the transaction contemplated under this Agreement or
any other bona fide material claim or demand, pending (1) in which the consummation of
this Agreement or the transaction contemplated hereby may be restrained, prohibited,
invalidated, set aside or delayed in whole or in part, or (2) in which damages are
sought in connection with the consummation of this Agreement. Buyer has specifically
acknowledges that it has been made aware of the following lawsuit: CV 00-039-6F-DWM;
	 
	 	(g)	 	All actions to be taken by Seller in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will be satisfactory
in form and substance to Buyer; and
	 
	 	(h)	 	Prior to Closing, Buyer shall have obtained all material permits, licenses or
consents required by any governmental authority or other entity.




7. Conditions of Closing by Seller. The obligation of Seller to close is subject to the
satisfaction of the following conditions:





	 	(a)	 	[INTENTIONALLY OMITTED]
	 
	 	(b)	 	The representations of Buyer contained in Section 9 hereof are true on and as
of Closing.




8. Representations of Seller. Each Seller jointly and severally represents to Buyer that
to the best of his/her/its knowledge:





	 	(a)	 	Macum is a corporation validity existing and in good standing under the laws of
the State of Montana and is duly qualified to own its properties and assets and to
carry on its business as now being conducted;
	 
	 	(b)	 	Each Seller has the requisite power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by each Seller and the consummation of the transactions
contemplated hereby have been duly authorized;
	 
	 	(c)	 	This Agreement has been duly executed and delivered by each Seller and
constitutes the valid and binding obligation of each Seller, enforceable against it in
accordance with the terms hereof, subject to the effects of bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights. No other act,
approval or proceeding on the part of any Seller or any other party is required to
authorize the execution and delivery of this Agreement by any Seller or the
consummation of the transactions contemplated hereby;




Page 6 of 18









 












	 	(d)	 	With regard to each Seller that is a corporation or other entity, this
Agreement, and the execution and delivery hereof by each such Seller, does not and the
consummation of the transactions contemplated hereby will not conflict with or result
in a breach of the charter or bylaws of any such Seller or any other governing
documents of any such Seller;
	 
	 	(e)	 	This Agreement, and the execution and delivery hereof by each Seller, does not
and the consummation of the transactions contemplated hereby will not violate, or
conflict with, or constitute a default under, or result in the creation or imposition
of any security interest, lien or encumbrance upon any property or assets of any Seller
under any mortgage, indenture or agreement to which it is a party or by which the
Interests are bound, which violation, conflict or default might adversely affect the
ability of any Seller to perform its obligation under this Agreement, or (ii) violate
and statute or law or any judgment, decree, order, writ, injunction, regulation or rule
of any court or governmental authority, which violation might adversely affect the
ability of any Seller to perform its obligations under this Agreement;
	 
	 	(f)	 	The Leases are in full force and effect, enforceable on their terms, and
comply with all regulatory requirements and laws, ordinances, statutes and regulations
and convey good and marketable title to the mineral rights described therein, and are
free and clear of all Title Defects except for the Permitted Encumbrances;
	 
	 	(g)	 	All material royalties, rentals and other payments due under the Leases have
been properly and timely paid, and all conditions necessary to keep such Leases
in force have been fully performed. No notices have been received by Seller of any
claim to the contrary;
	 
	 	(h)	 	No Seller is obligated to deliver hydrocarbons produced from the Interests at
some future time without receiving full payment therefore;
	 
	 	(i)	 	No entity has any call upon, right of first refusal, option to purchase or
similar rights under any agreement with respect to the Interests or to the production
therefrom;
	 
	 	(j)	 	There are no actions, suits, proceedings or governmental investigations or
inquiries pending or threatened, against any Seller or the Interests which might delay,
prevent or materially hinder the consummation of the transactions contemplated hereby
or materially adversely affect the title to or value of any of the Interests;
	 
	 	(k)	 	Seller holds all permits, licenses, consents and authorities issued and/or
required by any governmental authority having jurisdiction over the Interests or any
subdivision thereof, including without limitation, any governmental department,
commission, bureau, board or administrative agency which are necessary in relation to
Seller’s interest in the Leases and its ability to sell and transfer the Interests to
Buyer;




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	 	(l)	 	Each Seller has complied with all laws, ordinances, rules, regulations and
orders applicable to the Interests necessary for the conduct of legal operations of the
Interests;
	 
	 	(m)	 	There are no Title Defects with regard to the Interests;
	 
	 	(n)	 	All ad valorem, property, production, severance, excise and similar taxes and
assessments based on or measured by the ownership of property or the production of
hydrocarbons or the receipt of proceeds therefrom on the Interests that have become due
and payable and have been properly and timely paid;
	 
	 	(o)	 	Seller has incurred no liability, contingent or otherwise, for brokers’ or
finders’ fees relating to the transactions contemplated by this Agreement for which
Buyer shall have any responsibility whatsoever;
	 
	 	(p)	 	There are nonenvironmental hazards that will materially adversely effect the
Interests or the drilling of wells or transmission of oil and gas within the land
covered by the Leases. Seller has complied with all environmental laws, ordinances and
regulations pertaining to the Interests and the Leases;
	 
	 	(q)	 	The Interests will be conveyed to Buyer on the Closing Date free and clear of
all liens, encumbrances and unsatisfied judgments that negatively impact the Interests
or prevent Seller from having Defensible Title therein;
	 
	 	(r)	 	The Equipment shall be transferred to Buyer on the Closing Date in good working
condition, reasonable wear and tear excepted;
	 
	 	(s)	 	The information contained in the Exhibits attached hereto is accurate and
complete; and
	 
	 	(t)	 	Seller understands and agrees that Buyer has entered into this Agreement in
reliance on the representations and warranties in this Section 8.




9. Representations of Buyer. Buyer represents and warrants to each Seller that to the
best of its knowledge:





	 	(a)	 	Buyer is a corporation validly existing and in good standing under the laws of
the State of Ohio and is duly qualified to own its properties and assets and to carry
on its business as now being conducted;
	 
	 	(b)	 	Buyer has the requisite power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Buyer and the consummation of the transactions
contemplated hereby have been duly authorized;
	 
	 	(c)	 	This Agreement has been duly executed and delivered by Buyer and constitutes
the valid and binding obligation of Buyer, enforceable against it in accordance with
the terms hereof, subject to the effects of bankruptcy, insolvency,




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	 	 	 	reorganization moratorium, and similar laws affecting creditors’ rights. No other
act, approval or proceeding on the part of Buyer or any other party is required to
authorize the execution and delivery of this Agreement by Buyer or the consummation
of the transactions contemplated hereby;






	 	(d)	 	This Agreement, and the execution and delivery hereof by Buyer, does not and
the consummation of the transaction contemplated hereby will not (i) conflict with or
result in a breach of the charter or bylaws of Buyer or any other governing documents
of Buyer, or (ii) violate any statute or law or any judgment, decree, order, writ,
injunction regulation or rule of any court or governmental authority, which violation
might adversely affect the ability of Buyer to perform its obligations under this
Agreement; and
	 
	 	(e)	 	Buyer has incurred no liability, contingent or otherwise, for brokers’ or
finders’ fees relating to the transactions contemplated by this Agreement for which
Seller shall have any responsibility whatsoever.




10. Covenants of Seller. Seller covenants and agrees that from and after the Effective
Date and until Closing:





	 	(a)	 	Sales. Seller will not sell, transfer, assign, convey or otherwise
dispose of any Interest other than (i) oil, gas and other hydrocarbons produced, saved
and sold in the ordinary course of business, and (ii) personal property and equipment
which is replaced with property and equipment of comparable or better value and utility
in the ordinary and routine maintenance and operation of the Interests;
	 
	 	(b)	 	Encumbrances. Other than Permitted Encumbrances, Seller will not
create or permit the creation of any lien, security interest or encumbrance on any
interest, the oil or gas produced therefrom, or the proceeds thereof;
	 
	 	(c)	 	Operation of Interests. Seller agrees to:






	 	(i)	 	Cause the Interests to be developed, maintained and operated in
a prudent, good and workmanlike manner consistent with generally accepted
industry standards and practices and in accordance with applicable laws and
regulations and all applicable leases and other agreements maintain insurance
now in force with respect to the Interests, and pay or cause to be paid all
cost and expenses in connection therewith;
	 
	 	(ii)	 	Not drill any new well on the Interests without the advance
written consent of Buyer;
	 
	 	(iii)	 	Maintain and keep the Leases in full force and effect;
	 
	 	(iv)	 	Perform and comply with all of its obligations under all
agreements relating to or affecting the Interests;




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	 	(v)	 	Take no action which will cause any purchaser of production to
place in suspense any payment for production sold;
	 
	 	(vi)	 	Not enter into or assume any contract, agreement or commitment
which is not in the ordinary course of business as heretofore conducted or
which involves payments, receipts or potential liabilities with respect to the
Interests of more than One Thousand and 00/100 Dollars ($1,000.00); and
	 
	 	(vii)	 	Carry on its business with respect to the Interests in
substantially the same manner as it has heretofore, not introducing any new
method of management operation or accounting with respect to the Interests.






	 	(d)	 	Contracts and Agreements. Seller will not:






	 	(i)	 	Grant any preferential right to purchase or similar right or
agree to require the consent of any party to the transfer and assignment of the
Interests to Buyer;
	 
	 	(ii)	 	Enter into any gas sales contract or new crude oil sales or
supply contract with respect to the Interests which is not terminable without
penalty or detriment on notice of sixty (60) days or less;
	 
	 	(iii)	 	Incur or agree to incur any contractual obligation or
liability, absolute or contingent, with respect to the Interests;
	 
	 	(iv)	 	Enter into any transaction the effect of which, would be to
cause Seller’s ownership interest in any of the Interests to be altered from
its ownership interest as of the Effective Date; or
	 
	 	(v)	 	Enter into any settlement of or relinquish any outstanding
receivables (including, without limitation, the right to receive any
retroactive price adjustments, take-or-pay monies, FERC mandated refunds,
accounting adjustments, tax adjustments, and Minerals Management Service
refunds).






	 	(e)	 	Consents. If any approval or consent by any federal, state or local
government authority is required to vest good and Defensible Title to any of the
Interests in Buyer at Closing, Seller agrees to exercise its best efforts, as
reasonably requested by Buyer, to obtain all such required approvals or consents.
Seller will execute appropriate transfer orders covering the Interests submitted to it
for, execution designating Buyer as the appropriate party for payment, effective as of
the Closing Date;






	 	(f)	 	Notice of Defaults. Seller will give prompt written notice to Buyer of
any notice of default (or written threat of default, whether disputed or denied)
received or given by Seller under any instrument or agreement affecting the Interests
to which Seller is a party or by which it or any of the Interests is bound; and




Page 10 of 18









 












	 	(g)	 	Notice of Events and Proposals. If between the date hereof and Closing,
Seller becomes aware of (i) any action or occurrence which may materially affect any of
the Interest, (ii) any proposal from a third party to engage in any material
transaction with respect to any of the Interests, or (iii) any suit, action or other
proceeding before any court or governmental agency which relates to the Interests or
which might result in impairment or loss of the Seller’s title to any of the Interests
or the value thereof or which might hinder or impede the operation of the Interests, it
will give prompt written notice to Buyer of such action, occurrence or proposal.




11. Liabilities and Indemnities of Seller. In connection with the Sale, conveyance,
transfer, assignment and delivery of the Interests to Buyer, Buyer shall not assume or become
obligated in any way with respect to any liabilities of Seller that are not specifically assumed
hereunder, including but not limited to the following:





	 	(a)	 	Any cost, expense, liability or other obligation relating to the Interests
which accrued prior to the Closing Date unless specifically assumed by Buyer in Section
12 hereof;
	 
	 	(b)	 	Any litigation which affects the Interests, whether pending or threatened,
which is based upon omissions, events or occurrences prior to the Closing Date;
	 
	 	(c)	 	Any federal or state income tax or other tax liability of Seller arising by
reason of the transaction contemplated by this Agreement;
	 
	 	(d)	 	Any federal, state, county, municipal, ad valorem, production, windfall profits
        .or other tax liability attributable to Seller’s ownership or operation of any of the
Interests prior to the Closing Date except as to prepared taxes for the Current Tax
Period (as hereinafter defined);
	 
	 	(e)	 	Any claims arising out of the production or sale of hydrocarbons from the
Interests or the proper accounting or payment to parties for their interests therein,
prior to the Closing Date; and/or
	 
	 	(f)	 	Any other claim or demand against or liability or obligation of Seller arising
against, or liability or obligation of Seller arising from any act or omission
whatsoever of Seller, prior to the Closing Date, whether such claim, demand, liability
or obligation is fixed or contingent, and whether the same arises by contract, tort or
otherwise.





     Each Seller shall, jointly and severally and to the fullest extent permitted by law, protect,
defend, indemnify and hold Buyer and its affiliates, including its directors, officers, employees,
agents and representative of each of them, harmless from and against any and all claims, losses,
damages, costs, expenses, diminutions in value, suits, causes of action or judgments of any kind or
character with respect to any and all liabilities and obligations or alleged or threatened
liabilities and obligations, including, but not limited to, any interest, penalty and any
attorneys’ fees and other costs and expenses incurred in connection with investigating or defending
any claims or actions, whether or not resulting in any liability, attributable to or arising out of
(i)



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Seller’s ownership or operation of the Interests prior to the Closing Date, and/or (ii) the breach
by Seller of any of the covenants, representations and warranties contained in this Agreement.



12. Assumption of Obligations and Indemnities of Buyer. Buyer shall assume, as of the
Closing Date, only the contractual obligations of Seller related to the Interests which are set
forth in Exhibit “J” attached hereto (the “Assumed Liabilities”). Buyer shall, to the fullest
extent permitted by law, protect, defend, indemnify and hold Seller and its directors, officers,
employees, agents and representatives of each of them, harmless from and against any and all
claims, losses, damages, costs, expenses, diminutions in value, suits, causes of action or
judgments of any kind or character with respect to any and all of the Assumed Liabilities
including, but not limited to, any interest, penalty and any attorneys’ fees and other costs and
expenses incurred in connection with investigating or defending any claims or actions, whether or
not resulting in any liability, attributable to or arising out of (i) Buyer’s ownership or
operation of the Interests subsequent to the Closing Date, and (ii) the breach by Buyer of the
covenants, representations and/or warranties contained herein.



13. Indemnification Procedure for Third Party Claims. Any claim for indemnity shall be
made by written notice from the party seeking indemnification (the “Indemnified Party”) to the
party required to provide same (the “Indemnifying Party”), together with a written
description of the claim, stating the nature and basis of such claim and, if ascertainable, the
amount thereof. The Indemnifying Party shall have a period of thirty (30) days after receipt of
such notice within which to respond thereto or, in the case of a third-party claim which
requires a shorter time for response, within such shorter period as specified by the
Indemnified Party in such notice (the “Notice Period”). If the Indemnifying Party denies
responsibility or fails to respond to the notice within the Notice Period, the Indemnified Party
may defend or compromise the claim as it deems appropriate without prejudice to any of the
Indemnified Party’s rights hereunder, and the Indemnifying Party shall have no right to approve
or disapprove any actions taken in connection therewith by the Indemnified Party. If
the Indemnifying Party accepts responsibility, it shall so notify the Indemnified Party within the
Notice Period and elect either (a) to undertake the defense or compromise of such
third-party claim with counsel selected by the Indemnifying Party and reasonably approved by
the Indemnified Party or (b) to instruct the Indemnified Party to defend or compromise such
claim. If the Indemnifying Party undertakes the defense or compromise of such third-party
claim, the Indemnified Party shall be entitled, at its own expense, to participate in such
defense. No compromise or settlement of any third-party claim shall be made without reasonable
notice to the Indemnified Party and without the prior written approval of the Indemnified Party,
unless such compromise or settlement includes a general release of the Indemnified Party in
respect of the matter with no admission of liability on the part of the Indemnified Party and
no constraints on the future conduct of its business.



14. Closing. The Closing shall be held at 9:00 a.m., local time, on the date specified by
Buyer which date shall be no more than thirty (30) days following the expiration of the Due
Diligence Review Period (the “Closing” or the “Closing Date”).



15. Transactions at Closing. On the Closing Date:





	 	(a)	 	Seller shall execute, acknowledge and deliver to Buyer an Assignment and Bill
of Sale in a form satisfactory to Buyer (in sufficient counterparts to facilitate




Page 12 of 18









 






	 	 	 	recording in applicable counties and filing with the Bureau of Land Management or
other governmental authorities) conveying the Interests;






	 	(b)	 	Seller and Buyer shall execute and deliver a settlement statement that shall
set forth the purchase price and each adjustment and the calculation of such
adjustments used to determine such amount (the “Closing Amount”);
	 
	 	(c)	 	Unless Seller and Buyer otherwise agree, Buyer will prepare any closing
documents to be executed and delivered at Closing, subject to Seller’s review and
approval;
	 
	 	(d)	 	At Closing, Seller shall deliver to Buyer the originals or legible copies of
all lease, contract or well records relating to the property (the “Property Records”),
at a location designated by Buyer. Seller reserves the right to access and copy (at
its own expense) all Property Records for three years after the Closing Date, and Buyer
agrees to provide access to the Property Records to Seller during normal business
hours.
	 
	 	(e)	 	Buyer, within thirty (30) days after Closing, shall (i) record the Assignment
and Bill of Sale and all other instruments that must be recorded to effectuate the
transfer of the property; and (ii) file for approval with the applicable government
agencies all state and federal transfer and assignment documents for the property.
Buyer shall provide Seller a recorded copy of the Assignment and Bill of Sale and other
recorded instruments, and approved copies of the state and federal transfer and
assignment documents as soon as they are available.
	 
	 	(f)	 	Seller and Buyer shall execute, acknowledge and deliver transfer orders or
letters-in-lieu prepared by Seller, and approved by Buyer, directing all purchasers of
production to make payment to Buyer of proceeds attributable to production from the
Interests;
	 
	 	(g)	 	[INTENTIONALLY OMITTED]
	 
	 	(h)	 	Seller shall deliver to Buyer exclusive possession of the Interests; and
	 
	 	(i)	 	Buyer shall deliver to Seller a check payable to Seller and American State Bank
in the amount of the Purchase Price, as adjusted pursuant to the terms hereof, less the
Initial Deposit which shall be credited against the Purchase Price at Closing.




16. Post-Closing Adjustments. Within on hundred twenty (120) days after Closing, the
parties shall undertake to agree with respect to any adjustments or payments that were not finally
determined as of Closing (“Post-Closing Adjustments”). Seller shall provide Buyer access to such
of Seller’s records as may be reasonably necessary to a determination of Post-Closing Adjustments.
Payment of all Post-Closing Adjustments by Buyer or Seller shall be made in immediately available
funds within five (5) days of agreement. If the Post-Closing Adjustment has not been agreed upon
within the time period set forth herein, either party may seek to enforce any rights it claims
hereunder.




Page 13 of 18









 







17. Prorations.





	 	(a)	 	All ad valorem taxes, real property taxes, and similar obligations with respect
to the tax period in which the Closing Date occurs (the “Current Tax Period”) shall be
apportioned between Seller and Buyer as of the Closing Date based on an estimate of the
immediately preceding tax period assessment, and the purchase price shall be reduced at
Closing by the amount of such estimated taxes owed by Seller for that portion of the
Current Tax Period prior to the Effective Date.
	 
	 	(b)	 	All other taxes, including, but not limited to, excise taxes, state
severance taxes, and any other local, state, and/or federal taxes or assessments
relating to or arising out of the Interests prior to the Closing Date shall remain
Seller’s responsibility.
	 
	 	(c)	 	Seller shall pay all transfer, recording and registration fees and real estate
transfer, documentary stamp and similar transfer taxes imposed with respect to the
sale, conveyance and assignment of the Interests hereunder.
	 
	 	(d)	 	All rental payments due the lessors under the Leases shall be prorated as of
the Closing Date.




18. Proceeds of Production. Seller shall be entitled to all proceeds of production
attributable to the Interests and accruing to the period prior to the Closing Date, and Buyer shall
be entitled to all proceeds of production attributable to the Interests and accruing to the period
on and after the Closing Date.



19. Production Imbalances. The Purchase Price shall be adjusted upward or downward, as
appropriate, at the Closing to reflect the underproduction or overproduction of gas attributable to
Seller’s interests in gas produced from the property based on the price being received at the well
head at the Closing Date (net of any gathering, transportation, processing or other charges
downstream from the wellhead). If Buyer will be obligated under any applicable agreement currently
burdening the property to make cash payments to settle such imbalances after Closing, or to pay any
penalty as a result of imbalances, the adjustment to the Purchase Price shall reflect the adverse
economic effect of making such a cash payment or incurring the penalty as compared to balancing in
kind.



20. Notices. All communications required or permitted under this Agreement shall be in
writing and any communication or delivery hereunder shall be deemed to have been fully made if
actually deliver, or if mailed by registered or certified mail, postage prepaid, return receipt
requested, to the address as set forth below:




	 	 	 
	     SELLER	 	BUYER
	     Macum Energy Inc.

	 	Kykuit Resources, LLC
	     730 Main Street, Suite 103

	 	8500 Station Street, Suite 345
	     Billings, MT 59105

	 	Mentor, Ohio 44060
	     Attn: Ralph Gailey

	 	Attn: Gregory J. Osborne






Page 14 of 18









 





21. Further Assistance. Incidental and subsequent to closing, each of the parties shall
execute, acknowledge, and deliver to the other such further instruments, and take such other
actions as may be reasonably necessary to carry out the provisions of this Agreement.



22. Casualty Loss. Seller assumes the risk of any casualty loss prior to Closing/



23. Termination. This Agreement may be terminated at any time by mutual consent of Seller
and Buyer. In addition, this Agreement may be terminated (i) by Seller by notice to Buyer if all
conditions described in Section 7 shall not have been met and such noncompliance shall not have
been caused or waived by the actions-or inactions of Seller, (ii) by Buyer by notice to Seller if
all conditions described in Section 6 shall not have been met and such non-compliance shall not
have been caused or waived by the actions or inactions of Buyer, or (iii) by Buyer by written
notice to Seller in accordance with Section 5 hereof if Buyer is dissatisfied with its findings of
its Due Diligence Investigation for any reason whatsoever in Buyer’s sole and absolute discretion.
Upon termination of this Agreement the parties shall thereafter be under no further Obligation to
one another hereunder.



24. Default. If Buyer fails to comply with any obligation, term, covenant, warranty or
agreement to be kept, honored, observed or performed by Buyer pursuant to the terms and provisions
of this Agreement (a “Buyer’s Default”), and such Buyer’s Default is not cured within ten (10) days
after notice thereof, then Seller may terminate this Agreement, in which event the Initial Deposit
shall be retained by Seller as agreed upon liquidated damages, and neither Purchaser nor Seller
shall have any further obligations or liabilities hereunder. If Seller fails to comply with any
obligation, term, covenant, warranty or agreement to be kept, honored, observed or performed by
Seller pursuant to the terms and provisions of this Agreement (a “Seller’s Default”), and such
Seller’s Default is not cured within ten (10) days after notice thereof and Buyer does not
expressly waive such Seller’s Default, then Buyer may either (i) terminate this Agreement, in which
event the Initial Deposit shall be promptly returned to Buyer pursuant to Section 2(b) hereof, and
neither Buyer nor Seller shall have any further obligations or liabilities hereunder, or (ii)
pursue the right of specific performance.



25. Express. Whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay its own fees and expenses incident to the
negotiation, preparation and execution of this Agreement, including attorneys’ and accountants’
lees.



26. Entire Agreement. This instrument states the entire agreement between the parties and
may be supplemented, altered, amended, modified or revoked by writing only, signed by both parties.



27. Survival of Representations and Covenants. All representations, warranties, and
covenants of the parties to the extent not fully performed or waived prior to Closing shall survive
the Closing.



28. Counterpart. This Agreement may be executed by Buyer and Seller in any number of
counterparts, each of which shall be deemed an original instrument, but all of which together shall
constitute one and the same instrument.




Page 15 of 18









 







29. Time of Essence. Time is of the essence in this Agreement.



30. Announcements. Seller and Buyer shall consult with each other prior to the release of
any press releases and other announcements concerning this Agreement or the transactions
contemplated hereby.



31. Severability. If at any time subsequent to the date hereto any provision of this
Agreement shall be held by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the illegality or
unenforceability of such provision shall have no effect upon and shall not impair the
enforceability of any of the provision of this Agreement.



32. Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of Montana. The validity of the various conveyances and transfers affecting
the title to the Interests shall be governed by and construed in accordance with the laws of the
jurisdiction ill which such Interests are situated.



33. Waiver of Jury Trial. SELLER AND BUYER DO HEREBY IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR
OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.



34. In further consideration of the Purchase Price being paid by Buyer hereunder, from and after
the Closing Date, each Seller and any affiliate, agent, or other representative of any Seller shall
be prohibited from, directly or indirectly, acquiring, owning or otherwise maintaining a leasehold
interest, mineral interest, royalty interest, overriding royalty interest or any other interest in
the production of oil, gas or other minerals with regard to any part of the land located in Fergus
and Blaine Counties, State of Montana, more particularly described as follows: Townships 21, 22,
23, 24, 25, 26, and 27 and Ranges 16, 17, 18, 19, 20, 21, and 22, and shall also be prohibited
from, directly or indirectly, participating in the drilling of any oil, gas or other mineral wells
within the aforedescribed land area. 




     EXECUTED as of the date first above mentioned.



	 	 	 	 	 	 	 
	 

	 	SELLER:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	MACUM ENERGY, INC.	 	 
	 	 	a Montana corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ R.S. Gailey
 

	 	 
	 	 	Print Name: R.S. Gailey	 	 
	 

	 	Its:
	 	President	 	 






Page 16 of 18









 






	 	 	 	 	 	 	 
	 

	 	 	 	HAROLD & EVA HOLDEN LIVING TRUST

DATED 1995	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Harold Holden
 

Harold Holden, Trustee
	 	 
	 

	 	 	 	/s/ Eva Holden	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Eva Holden, Trustee	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	WINIFRED GAS PARTNERSHIP	 	 
	 

	 	 	 	A                      partnership	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Patrick W. Hanley	 	 
	 

	 	 	 	 	 	 
	 	 	Print Name: Patrick W. Hanley	 	 
	 

	 	Its:
	 	General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	GOOD RIDGE RESOURCES, INC.	 	 
	 

	 	 	 	A                      corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ William Goodridge	 	 
	 

	 	 	 	 	 	 
	 	 	Print Name: William Goodridge	 	 
	 

	 	Its:
	 	President	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	VINCENT C. LARSON	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Vincent C. Larsen	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Vincent C. Larson	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	DR. DAVID T. LARSEN	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Dr. David T. Larsen	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Dr. David T. Larsen	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	PIC PRODUCTION COMPANY	 	 
	 

	 	 	 	A                      corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Patrick J. Butler	 	 
	 

	 	 	 	 	 	 
	 	 	Print Name: Patrick J. Butler	 	 
	 

	 	Its:
	 	President	 	 






Page 17 of 18









 






	 	 	 	 	 	 	 
	 

	 	 	 	STANLEY & BEVERLY STOTT LIVING TRUST


DATED 4/30/96	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Stanley Stott
 

Stanley Stott, Trustee
	 	 
	 

	 	 	 	/s/ Beverly Stott	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Beverly Stott, Trustee	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	FAITH DRILLING, INC.	 	 
	 

	 	 	 	A Montana corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Doug Brenner	 	 
	 

	 	 	 	 	 	 
	 	 	Print Name: Doug Brenner	 	 
	 

	 	Its:
	 	President	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	BUYER:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	KYKUIT RESOURCES, LLC	 	 
	 

	 	 	 	an Ohio limited liability company	 	 
	 

	 	By:
	 	John D. Oil and Gas, Inc.,	 	 
	 

	 	Its:
	 	Managing Member	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Gregory J. Osborne	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Gregory J. Osborne	 	 
	 

	 	 	 	President of John D. Oil and Gas, Inc.	 	 






Page 18 of 18









 






EXHIBIT “A”




Leases




A-1









 





EXHIBIT “B”




Wells




B-1









 





EXHIBIT “C”




Pipelines




C-1









 





EXHIBIT “D”




Agreements




D-1









 





EXHIBIT “E”




INTENTIONALLY OMITTED




E-1









 





EXHIBIT “F”




Net Revenue Interest/Working Interest




F-1









 





EXHIBIT “G”




Sales Contracts




G-1









 





EXHIBIT “H”




Third Party Consents to Assignments




H-1